Start-up strikes mobile payment deal in China

A British online payments start-up has a signed a 10-year deal with a division of China's only credit card company to bring its technology to the world's second-largest economy.

Powa Technologies has formed a joint venture with UnionPay Network Payments, a division of China UnionPay, to launch PowaTag UnionPay, an app that will let people pay for items via their mobiles in stores. It works by allowing a smartphone user to scan a code, pick up a Bluetooth signal or even register a sound via their device. The item which is then scanned can be purchased through Powa's app via mobile.

"This has huge implications for us of course," Dan Wagner, CEO of Powa Technologies, told CNBC by phone.

The startup, which raised a massive $80 million last year, valuing it around $2.7 billion, is trying to tap into the trend of so-called "online to offline (O2O)" – where shoppers search for products online then buy them in a physical store. The O2O market grew 80 percent in first half of 2015 and is worth around $47 billion, according to China's Commerce Department.

Powa Technologies

Wagner said the joint venture will first launch in the Guangdong Province, giving people the ability to transact with 400,000 merchants. The company will then expand the technology to all 6 million merchants in China. The joint venture also hopes to have 50 million consumers using the app by 2016. For Powa, which says it has 1,200 worldwide using its PowaTag solution, the move into China will give it the scale it needs.

And for UnionPay Network Payments, the move will allow it to compete with the dominant players in mobile payments such as Alipay, which is run by Alibaba's affiliate Ant Financial, according to analysts.

"There will be over 1 billion mobile payment registered users in China by 2020, the overwhelming majority on platforms like WeChat/Weixin, or Alipay," Enrique Velasco-Castillo, senior analyst at Analysys Mason, told CNBC by email.

"The joint venture with Powa Technologies could help China UnionPay capture mobile commerce consumers that already purchase items through those apps."

Earlier this year, speculation was rife that Apple was looking to partner with China UnionPay to launch Apple Pay in the country. Wagner said: "I think the rumors were about us".

Powa Technologies is one of Europe's so-called "unicorns" – companies valued over $1 billion. When asked if the company was thinking of going public soon, Wagner said it was "definitely on our radar", adding that it could be possible in 2016 but he was giving "no commitments".

Clarification: This article has been updated since first published to reflect that Powa Technologies' joint venture is with a division of China UnionPay.